Crude Oil at a 2 month low, stocks traders cautious

Quick Recap

Yesterday I wondered if the moves by the ECB, or the promise at least, and the rate cut in China was going to be enough to calm trader nerves. Price action in the past 24 hours tells us that this is not the case.

Sure the Shanghai rally of 0.5% and the Nikkei’s 0.6% move higher took them to the highest closes in a while but it wasn’t exactly a surge you’d expect if traders were positive. Likewise the ASX 200 went nowhere and the moves in Europe last night saw all the major markets, except for Germany, down around half a percent.  Germany’s divergent print could have been the better than expected print in Ifo business climate. But it was still lower than last month.

In the US stocks in the Dow and S&P 500 were under pressure from the get go and finished lower but the Nasdaq was either side of flat to finish with a tiny gain.

You could say it’s a natural consolidation after a sharp move. But, with most major indices more than 10% off their lows the big question is what next. Of course rthe number of speculative shorts could fuel the next leg higher toward 5100 in the S&P, if that happens. Likewise the Fed could soften it’s tone when it releases it’s statement at 5am AEDT time Thursday.

For the moment, the best guide for me is the price action. No follow through is not a bearish sign, but it is a signal for caution. So, last night the S&P held above the 200 day moving average and has a zone of support below it. That would have to break to scare traders again.

Here’s the chart:

MMMMMM, anyway one sign that traders are more discerning these days than what we’ve seen in the past where many blindly followed central banks and QE is the price action on commodity markets. Crude oil crashed to its lowest close in two months with a fall of almost 2% and a close below $44 a barrel. Iron ore has now dropped 10% in 2 weeks and while copper held firm other base metals came under pressure.

It paints a very different picture to stocks which highlihgts to me this is a topping pattern for stock markets and indices.

On Forex, I like what I wrote at Business Insider this morning. So here it is:

It seems clear for the moment that forex traders are betting the Fed might be dovish, less likely to hike rates in 2015. After some very strong price action at the back end of last week, which drove euro from the high 1.13s last week to a low of 1.0987, traders are wary of driving further US dollar strength. No doubt traders recall Janet Yellen’s last post-FOMC press conference when she expressly noted a strong US dollar was one of the reasons the Fed passed on raising rates. That helped the euro climb off the mat and it’s back at 1.1050, GBP is back up at 1.5345 and USDJPY is sitting at 121.

The Aussie dollar managed to buck the trend of weaker oil and iron ore with a small rally yesterday which took it to 0.7260. It’s been rangebound since and is sitting at 0.751 this morning. The Kiwi has had a good day and is up half a per cent at 0.6782 taking AUDNZD down a little to 1.0672.

The overnight scoreboard (8.51 am AEDT):

• Dow Jones Industrials -0.13% to 17,623
• Nasdaq Composite +0.06% to 5,034
• S&P 500 -0.19% to 2,071
• London (FTSE 100) -0.42% to 6,417
• Frankfurt (DAX) +0.06% to 10,801
• Tokyo (Nikkei)+0.65% to 18,947
• Shanghai (composite) +0.53% to 3,430
• Hong Kong (Hang Seng) -0.15% to 23,116
• ASX Futures overnight (SPI December) +1 to 5,333
• AUDUSD: 0.7242
• EURUSD: 1.1043
• USDJPY: 120.99
• GBPUSD: 1.5350
• USDCAD: 1.3154
• Nymex Crude (front contract): $43.73
• Copper (US front contract): $2.35
• Gold: $1,162
• Dalian Iron Ore (January): 365.5 (denominated in CNY)
• US 10 year bond rate: 2.05%

On the day

On the data front today we have the weekly ANZ Roy Morgan consumer confidence data out in Australia. Trade data is out in New Zealand and this will impact the Kiwi if it is materially deviant from expectations. Otherwise, it’s quite until UK GDP tonight which will be huge for those wondering about the path of the Bank of England and interest rates. In the US, durable goods are important, as are PMIs and the Richmond Fed index.

CHART OF THE DAY: Nymex Crude (USOIL)

If this falls much further it’s a shot duck.

Crude has been under pressure again. Clearly traders are taking the view that Chinese rate cuts and more ECB QE are not consistent with strong demand for oil or solid global growth. While Barclays traders reckon oil can come surging back Goldman Sachs are thinking the opposite.

looking at the charts though and it’s clear that Oil is resting right on very important resistance.

A break of $43.73 would make Oil the first market (outside forex) to break the September consolidation range lows. After a momumental rejection of the 200 day moving average it would open the way back toward $40 a barrel and perhaps below.